As the year wraps up and trading volume declines, readers who booked solid gains already can afford to take a few risks. The short-term stocks to buy will need to be more volatile than the market average. They will also need a near-term catalyst within a few weeks that will send the stock sharply higher.
This December’s trading patterns may differ from past years. The coronavirus triggered a lockdown in many places around the world. The stock market now has more investors than ever, with time to trade at home.
So, if trading volume is higher than normal this season, investors have an even better opportunity. There are seven stocks to buy.
- Regeneron Pharmaceuticals (NASDAQ:REGN)
- Griffon Corporation (NYSE:GFF)
- Qorvo (NASDAQ:QRVO)
- Qualcomm (NASDAQ:QCOM)
- Rocket Companies (NYSE:RKT)
- MasTec (NYSE:MTZ)
- Skyworks Solutions (NASDAQ:SWKS)
Short-Term Stocks to Buy: Regeneron Pharmaceuticals (REGN)
Regeneron fell out of favor in the last month on no news. Markets are more willing to bet on coronavirus vaccine suppliers like Moderna (NASDAQ:MRNA) for bigger returns. This creates a short-term buying opportunity for value investors.
In the third quarter, Regeneron posted revenue jumping 32% to $2.294 billion. Sales of Dupixent, which primarily treats patients suffering from atopic dermatitis, grew 69% year-on-year to $1.07 billion. Retinal disease treatment Eylea is still the biggest revenue generator, rising 9% to $2.09 billion.
Covid-19 vaccine suppliers trade at high price-to-earnings multiples. By comparison, Regeneron’s REGN-COV2 forecast dose availability of 200,000 by the first week of January 2021. It will have around 300,000 total doses by the end of January 2021.
Since vaccines protect people from the virus, it does not treat those already infected. Regeneron’s drug does. Although unit sales will not match Moderna’s levels in the 500 million range, investors get to invest in the antiviral supplier. The company also offers a growing cash flow from its existing product line.
As shown above, REGN stock is approaching seasonal strength. The stock may rebound sooner than that.
Griffon Corporation (GFF)
Last month, Griffon announced a 6.7% dividend hike to 8 cents a share. Strong fourth-quarter results are a near-term driver for GFF stock rebounding.
The tool and building products maker posted revenue growing 9% to $2.4 billion. Income topped $1.19 a share, up from $1.06 last year. The company took advantage of its organic revenue and EBITDA growth by strengthening its balance sheet. It refinanced its bonds, extended debt maturities to 2028, and added $178 million of cash by selling shares.
The stock sale may have sent the shares sharply lower in November. The chart also shows “multiple tops” at $24. Per Tipranks, the average analyst price target is $28.75. In the five-year discounted cash flow growth exit model shown below, the fair value is ~$23:
|Discount Rate||9.5% – 8.0%||9.00%|
|Perpetuity Growth Rate||1.5% – 2.5%||2.00%|
|Fair Value||$18.39 – $32.95||$22.85|
Rumors that Apple (NASDAQ:AAPL) would produce its modems sent Qorvo stock lower last week. The connectivity giant posted strong second-quarter results. Markets recently forgot about that.
In Q2, Qorvo posted a gross margin of 46.4%. Operating income was $222 million and diluted EPS was $1.18. The company forecast revenue of around $1.06 billion. Non-GAAP gross margin will jump to 52.5%. The midpoint EPS is $2.65. Chief Financial Officer Mark Murphy credits the product and technology mix, operating performance, and control of costs for the record operating margins. The free cash flow forecast of $900 million suggests that Qorvo may buy back shares next.
QRVO stock is trading at close to its high for the year. At current levels, the tech maker offers a decent short-term upside. If buyers pick the stock on the dip and ride the rally higher, the short-term profits will come without much effort.
In this model, the stock has an upside in the high single-digit percentage range.
Just as the in-house modem development at Apple hurt Qorvo stock, it also sent Qualcomm stock lower. The chip giant gets only around 11% of its total revenue from sales to Apple.
Apple’s foray into modem development is not news. It bought Intel’s (NASDAQ:INTC) modem business last year. Qualcomm is still a 5G leader and its sales will grow as the 5G upgrade cycle unfolds. At a broker conference call, QCOM executive Cristiano Amon highlighted its radio frequency front end, Cellular, and Wi-Fi solutions.
Qualcomm is not relying only on the smartphone market for its growth. It has one project in the autonomous driving space. As that bears fruit, look for it to expand its presence in the auto business.
As shown above, Qualcomm is the most efficient company compared to its peers. Trade QCOM stock as it rallies into the new year.
Rocket Companies (RKT)
Historically low mortgage rates and strong housing demand will lift Rocket stock. In Q3, the company posted non-GAAP EPS of $1.21. Revenue rose an incredible 163.3% Y/Y to $4.74 billion.
Markets treat RKT stock as if it were a stodgy bank. It is more than that. It is a profitable and successful e-commerce firm. At its current price at a forward P/E barely above 10x, Rocket stock is poised to bounce.
Management recognized the stock’s cheap levels, so the company’s board approved a $1 billion stock buyback. This will set a support level on the market. As it generates strong cash flow over the longer term, traders may want to accumulate the stock as it dips. The long-term value increases continually. Eventually, other e-commerce firms will try to enter the mortgage business. By then, investors will conclude that Rocket is the best stock to own in this space.
The 27% short float on Rocket may lead to a short squeeze. Short-term investors may trade the stock when it bounces higher.
Engineering firm MasTec may have posted a 16.3% Y/Y drop in revenue but it also reported cash flow from operations of $216 million. For the year-to-date, it posted cash flow from operations of $712 million.
By working down its debt by $129 million last quarter, its net debt fell to $1.07 billion. MTZ stock is in a sustained uptrend because the shares are inexpensive. The P/E is still in the teens. The company is a leader in the critical infrastructure specialty contracting space. It has a resilient business model and plenty of recurring revenue. Markets are willing to accumulate shares because of that consistent performance.
MasTec’s exposure to clean energy and infrastructure is the main reason for trading the stock in the short-term. Expect the upside to continue into the new year.
Skyworks Solutions (SWKS)
Since June, Skyworks traded in a tight trading range. The SWKS stock will benefit from near-term business strength. CEO Liam Griffin highlighted the company doing a good job managing through its reliance on Huawei. Now, it counts on Oppo, Vivo, and Xiaomi for strong opportunities. These customers are embracing high-end solutions.
As device complexity increases, Skyworks will have a growing addressable market. For example, its business will benefit from extended bands, higher data consumption, and the need for backward compatibility for 3G and 4G.
Based on the cash flow it expects the company to generate in the future, simplywall.st thinks SWKS stock is worth $188.78.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.